Federal Agency Actions (Could) Lead to Big Changes
Two federal agencies dealing with employment issues, the Federal Trade Commission (FTC) and the Department of Labor (DOL), are considering or have already implemented new rules that will affect employers. The issues relate to noncompete agreements and joint employment.
On January 9, 2020, the FTC held a public workshop to examine whether there is a sufficient legal basis and empirical economic support to promulgate a rule restricting the use of non-compete clauses in employer-employee contracts. The U.S. Department of Justice Antitrust Division held a similar workshop in September 2019.
Non-compete agreements have historically been the province of state law, and the laws vary widely. For instance, employer-friendly states such as Florida generally allow enforcement of non-compete agreements and provide a statutory framework requiring only minimal proof of a legitimate business interest that needs to be protected. On the other end of the spectrum, some other states prohibit non-competes altogether. Any FTC rule would be the most significant step toward “federalizing” non-compete law.
The FTC discussed the following topics at its workshop, and is seeking public comment on the following questions, as well as related topics:
What impact do non-compete clauses have on labor market participants?
What are the business justifications for non-compete clauses?
Is state law insufficient to address harms associated with non-compete clauses?
Can a non-compete clause be an unfair method of competition or an unfair or deceptive act or practice?
Should the FTC implement a rule? If so, what gaps will such a rule fill?
Are there tools besides rulemaking that could be used?
As you see, any FTC rule could drastically alter the non-compete landscape. Interested employers should consider providing public comments. For more information on the workshop, the potential rule, and how to comment, see: https://www.ftc.gov/news-events/press-releases/2019/12/ftc-hold-workshop-non-compete-clauses-used-employment-contracts.
Whereas the proposed rule on non-competes is only a possibility, the DOL published its final rule on Joint Employment on January 16, 2020. The final rule provides updated guidance for determining joint employment status when an employee performs work for his or her employer that simultaneously benefits another individual or entity. This situation becomes relevant when an employee is purportedly working for two separate employers, but combined works more than 40 hours in a single workweek. Is the employee due overtime? If so, who pays it? At its core, the rule does the following:
Specifies how to determine when the work for one employer benefits another person and thus creates joint employment.
Establishes a four-factor balancing test in the scenario in which another person is benefitting from the employee’s work. The factors to consider: (1) who hires or fires the employee; (2) who supervises and controls the employee’s work schedule; (3) who determines the employee’s rate and method of payment; and (4) who maintains the employment records.
The new rule will undoubtedly spawn debate and dispute over its interpretation, but may provide at least a foundation for greater clarity. Employers should nonetheless consider each case as fact-specific and through the lens of the new rule. To make things even more complicated, the DOL’s final rule comes on the heels of the Equal Employment Opportunity Commission (EEOC) recently announcing its own intention to clarify that agency’s joint-employment analysis.
As always, the sands shift when various agencies engage in rulemaking. Employers should make their voices known as rules are being considered and be prepared to comply with new rules when implemented.